Question on conflictual interest of central banks

[Nicolas Dorier]

Lots of people believe (me included) that the root of our problem is that the central banks (be it fed or european central banks) are heavily affiliated with private banks.
Central banks should behaves in a way that benefit the users of their currency, but their affiliation encourage them to behave for the benefit of private banks.

My question is : Why do you think it is the case ? In central banks, how decisions are made and by whom ? What is the link (relationship) between these people and the private banks ?

Can you give me the names, and with evidences that back your claims ? (I always heard the Rotshild controls that, but at the same time people that claims such thing never prove it by linking their concrete roles into private banks and central banks)

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[Charlie Prime]

You must first distinguish between private Central Banks such as the U.S. Federal Reserve Bank, and truly public Central Banks such as the Central Bank of Iran.

[Nicolas Dorier]

European Central bank is public right ? it is public, but at the same times why does some people claims its interest are private's one.

[twiifm]

You got the relationship wrong.

Central banks provide banking services to commercial banks.   Central banks were created to stabilize banking not as profit businesses

They are private but w govt oversight

[Nicolas Dorier]

You got the relationship wrong.

Central banks provide banking services to commercial banks.   Central banks were created to stabilize banking not as profit businesses

They are private but w govt oversight

I know that, my point is that they have trendemous power because they totally control the money supply.
Some people says that they do that for the interest of a fews, private bank holders.
Other, which believes in the system say they do everything to make the currency good for the citizens.

The question of this post is the following : those who claims central banks do not act in the interest of the citizens, but in the interest of private banks, what claim do they have ?
I am not taking sides, I know what is the power of the central banks, I just want to know their motivations.

So my question is : who controls the decisions of central banks ? Who controls the money supply ? And are those people linked to private banks ? (and so would work for their own interest)
And by who I mean real name, and how they got here.

[DeathAndTaxes]

Inflation isn't inherently bad for everyone.  If you are debtor and have fixed interest debt inflation is very good.  Imagine you have a house valued at $200,000, a $200,000 interest only mortgage and $50,000 salary with no other debt or assets.  You have a debt to income ratio of 400% and a net worth of $0.  Now imagine the fed inflates the dollar 10x in 2015 (or over some extended period of time).  In time the price of your wages will rise to $500,000 and the price of your house to $2M.  You now have a net worth of $1.8M and your debt to income ratio is now only 40%.

Now obviously the price of everything else would also rise so in real (inflation adjusted) terms you house is still only worth $200K (circa 2014 dollars) but your debt is only $20K (in 2014 dollars).  Your net worth is $180,000 in real terms and that is better than $0.  So inflation made you "rich" = improved your net worth.

Anytime the FED does anything there is a winner and a loser.  Debtors benefit from the debasement of money and the larger the debtor the more they benefit.  Who appoints the members of the Federal Reserve?  Hint it is the largest debtor in the US (and world).  What do you think would happen to a federal reserve board member if he advocated very high interest rates (which would hurt the ability of this world's largest debtor to continue to borrow insane amount of subsidized money)?

Banks benefit from the actions of central banks through a different process and that is the delayed effect of changes in the money supply on prices. 

[Nicolas Dorier]

I think I did not explained me well.
I'm not an expert, but know the theory behind the goal of the central bank. And I know how I can leverage the inflation to my advantage. (whether, there is inflation or deflation, it is just a matter of parameter for the well advised)

My question is : the people that controls the money supply hold more power than our own governments.
Who are they and how did they get the control ?
Is there anyway where I can find such information ? I want to know how these world impacting decisions are made.

[DeathAndTaxes]

Well it depends on the history and policy of each central bank.  In the case of the FED the US Congress could abolish it instantly by passing legislature and the federal reserve board members are appointed by the President.  The idea that the government can't do anything about it is just a farce.  However it goes back to why would the government want to abolish the Fed?  The debasement of money is in the best interest of debtors and the US government is the single largest debtor in the US, the world, and the history of mankind.  Why exactly would they want to eliminate a system which allows them to borrow a nearly unlimited amount of money at subsidized interest rates.  It is a symbiotic relationship.

[Ron~Popeil]

Well it depends on the history and policy of each central bank.  In the case of the FED the US Congress could abolish it instantly by passing legislature and the federal reserve board members are appointed by the President.  The idea that the government can't do anything about it is just a farce.  However it goes back to why would the government want to abolish the Fed?  The debasement of money is in the best interest of debtors and the US government is the single largest debtor in the US, the world, and the history of mankind.  Why exactly would they want to eliminate a system which allows them to borrow a nearly unlimited amount of money at subsidized interest rates.  It is a symbiotic relationship.

QFT. The system works beautifully for the powerful. It is the average people that get burned.

[twiifm]

I think I did not explained me well.
I'm not an expert, but know the theory behind the goal of the central bank. And I know how I can leverage the inflation to my advantage. (whether, there is inflation or deflation, it is just a matter of parameter for the well advised)

My question is : the people that controls the money supply hold more power than our own governments.
Who are they and how did they get the control ?
Is there anyway where I can find such information ? I want to know how these world impacting decisions are made.

Are you asking about history of central banking?

I suggest a coursera.org class on economics of banking taught by Merhling of Columbia U

[CurbsideProphet]

It's mainly the savers who get burned.  A low interest rate environment not only allows for the taking of higher risk but also necessitates it as the rate of return on "safe" investments fall below inflation.

[Nicolas Dorier]

Well it depends on the history and policy of each central bank.  In the case of the FED the US Congress could abolish it instantly by passing legislature and the federal reserve board members are appointed by the President.  The idea that the government can't do anything about it is just a farce.  However it goes back to why would the government want to abolish the Fed?  The debasement of money is in the best interest of debtors and the US government is the single largest debtor in the US, the world, and the history of mankind. Why exactly would they want to eliminate a system which allows them to borrow a nearly unlimited amount of money at subsidized interest rates.  It is a symbiotic relationship.

So the board members take decision ?
I want to know more about them. They have way greater power than governments.

If they want to print money for some banks, but not for other they can.
So theorically they can allow whatever economic activity they like to thrive, or on the contrary prevent other to develop.

What if some of board members are also part of the board of private bank. Such person is able to kill its competitor by not granting more debt, or on the contrary stimulate his own bank.
Am I missing something ?

Are you asking about history of central banking?

I suggest a coursera.org class on economics of banking taught by Merhling of Columbia U

I'm not here to search for that, I just want to know how the internal decisions of central  banks are taken. But nevertheless I'll check out the course, thanks.

[DeathAndTaxes]

It's mainly the savers who get burned.  A low interest rate environment not only allows for the taking of higher risk but also necessitates it as the rate of return on "safe" investments fall below inflation.

A visual to illustrate the point (for those who don't know the term "real" means adjusted for inflation i.e. 3% savings bond when inflation is 3% is a 0% real return)

[twiifm]

Maybe this will help

http://www.federalreserve.gov/pubs/frseries/frseri.htm

[Nicolas Dorier]

Maybe this will help

http://www.federalreserve.gov/pubs/frseries/frseri.htm

Exactly what I was looking for thanks.
I'll search about the background of these guys.
By the way I follow the Economics of Money and Banking class on coursera. Amazing teacher.

[twiifm]

Maybe this will help

http://www.federalreserve.gov/pubs/frseries/frseri.htm

Exactly what I was looking for thanks.
I'll search about the background of these guys.
By the way I follow the Economics of Money and Banking class on coursera. Amazing teacher.

I was thinking about your question whether Central Banks act in the interest of banks or citizens.  I think the answer is both because economics is intertwined

In politics, some people might separate finance from other businesses.  But it doesn't make sense to an economist.

[Nicolas Dorier]

I understand that from an economist point of view there is no concern about the politics, and central bank is doing its job.
But what I don't understand is : these people can freely choose where the will expend the currency.

This means that if for example a member of the board of the central bank is also member of the board of a commercial bank, then he has the power to kill its competitor by not providing currency to its competitor.
From the economist perpective, I understand that we turn a blind eye on that though.

What I don't understand is : are these people able to choose what sector, or what company, to stimulate or to kill by choosing where currency is spread, for some personal interest ?

[Nicolas Dorier]

The FED is "owned" by private shareholder, why government gave the key to their freedom to private shareholder ? I don't get it.
Does other central bank like ECB are the same ?

[knightcoin]

Reminds me .. Medieval Europe... During feudalism every feudal land could print their own altcoin

[twiifm]

I understand that from an economist point of view there is no concern about the politics, and central bank is doing its job.
But what I don't understand is : these people can freely choose where the will expend the currency.

This means that if for example a member of the board of the central bank is also member of the board of a commercial bank, then he has the power to kill its competitor by not providing currency to its competitor.
From the economist perpective, I understand that we turn a blind eye on that though.

What I don't understand is : are these people able to choose what sector, or what company, to stimulate or to kill by choosing where currency is spread, for some personal interest ?

Are you talking about TARP bailout?  That was mostly Treasury but in the case of AIG, Federal Reserve was involved.

The purpose of the Fed is not to make profit so there's no reason for them to kill any banks.

It's more like the banks become insolvent so they need to get loans from somewhere.  If other banks don't lend to them, they go to the Fed

[Nicolas Dorier]

There is no incentive for the FED as a hole to kill any banks, but might be for private interest.
And why the FED is owned by private corporation, if there is no profit ? Why corporations own stock the FED ?

[twiifm]

The FED is "owned" by private shareholder, why government gave the key to their freedom to private shareholder ? I don't get it.
Does other central bank like ECB are the same ?

From Wikipedia

The Federal Reserve Banks issue shares of stock to member banks. However, owning Federal Reserve Bank stock is quite different from owning stock in a private company. The Federal Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the system. The stock may not be sold or traded or pledged as security for a loan; dividends are, by law, limited to 6% per year.[9]

The dividends paid to member banks are considered partial compensation for the lack of interest paid on member banks' required reserves held at the Federal Reserve. By law, banks in the United States must maintain fractional reserves, most of which are kept on account at the Federal Reserve. Historically, the Federal Reserve did not pay interest on these funds. The Federal Reserve now has authority, granted by Congress in the Emergency Economic Stabilization Act (EESA) of 2008, to pay interest on these funds.

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The Fed is designed to operate independent from Congress so that govt won't abuse printing of money.  Its to protect the bankers from govt, but at the same time it can act as "lender of last resort"

[Nicolas Dorier]

I see, thanks for the information, I'm going to learn more about the system.
This is really interesting, I never asked so much question on economy and the system since I started buying BTC, trying to understand why some people are or are not convinced about it.
Uncharted territory for me... looking the coursera video

[twiifm]

I see, thanks for the information, I'm going to learn more about the system.
This is really interesting, I never asked so much question on economy and the system since I started buying BTC, trying to understand why some people are or are not convinced about it.
Uncharted territory for me... looking the coursera video

Banking is not easy to understand but that course is good because he covers some history you can understand why it has evolved to where we are today.  He doesn't talk politics which is good.

A lot of people think banks & govt are in bed together but I think its not like that.  Govt is like parent that try to make rules but the banks (kids) keep getting into trouble.  Then the parents have no choice but to bail them out.  Some believe we should allow banks to fail and the small ones do fail.  But when they get too big the failure would pull down the rest of economy. As a Central Banker, the moral thing to do is save the economy.  Theres a reason why they let Lehman fall but saved AIG. 

I do think the legislators need to make greater restrictions on financial sector thru regulations.  But its hard because after repeal of Glass-Steagal Act the commercial & investment banks became merged.  People here criticize money creation & Federal Reserve System often.  But I think the problems come more from the investment side of banking mores than the commercial side.

[tooil]

The system is put in place to serve the narrow group of powerful families.

People who think we live in a democracy society are delusional.

[Nicolas Dorier]

The system is put in place to serve the narrow group of powerful families.

People who think we live in a democracy society are delusional.

So what are your claim ?

Govt is like parent that try to make rules but the banks (kids) keep getting into trouble.  Then the parents have no choice but to bail them out.

Govt is not parent but puppet, they have no choice other than bail out because if they don't their head will finish on the top of a peak. (Litteraly)
But the more I think about it, the more I realize that central banks might also have done the best they can.
My belief is that so much power should not be held in the hands of a central authority. But I will listen to coursera video more to see what the teacher has to say, and also read about milton friedman point of view.

[twiifm]

Friedman is a monetarist.  But hes influenced by Adam Smith.

He believes the market will work itself out without govt intervention.  But he was also a Central Banker so he believe monetary policies could correct financial problems

Its hard to say how much powerba govt should or shouldn't have.  Maybe you are right that govt is puppet.  But their job should be regulators

[Benjig]

Monetary policy can't solve the problems that have to be solved by financial and economic policy, structural policy, "Some deleveraging is necessary and it is completely irresponsible to suggest that some countries that are so vulnerable should now go for growth with stimulus programs for their economies,"

[Nicolas Dorier]

Friedman is a monetarist.  But hes influenced by Adam Smith.

He believes the market will work itself out without govt intervention.  But he was also a Central Banker so he believe monetary policies could correct financial problems

Its hard to say how much powerba govt should or shouldn't have.  Maybe you are right that govt is puppet.  But their job should be regulators

To what I've seen (yet to finish the book), Friedman is not for central banks, he tolerates them "because they are here, they might do something", but actually would prefered a life without.

[twiifm]

Friedman is a monetarist.  But hes influenced by Adam Smith.

He believes the market will work itself out without govt intervention.  But he was also a Central Banker so he believe monetary policies could correct financial problems

Its hard to say how much powerba govt should or shouldn't have.  Maybe you are right that govt is puppet.  But their job should be regulators

To what I've seen (yet to finish the book), Friedman is not for central banks, he tolerates them "because they are here, they might do something", but actually would prefered a life without.

Yeah you are right.  I confused Friedman w someone else

[Trading]

As far as I know, the Fed is the only important central bank that isn't public.

Not even Thatcher dare to privatize the Bank of England (it was nationalised in 1946).

[Coinsera]

Lots of people believe (me included) that the root of our problem is that the central banks (be it fed or european central banks) are heavily affiliated with private banks.
Central banks should behaves in a way that benefit the users of their currency, but their affiliation encourage them to behave for the benefit of private banks.

My question is : Why do you think it is the case ? In central banks, how decisions are made and by whom ? What is the link (relationship) between these people and the private banks ?

Can you give me the names, and with evidences that back your claims ? (I always heard the Rotshild controls that, but at the same time people that claims such thing never prove it by linking their concrete roles into private banks and central banks)

I am not understanding the policy of the government, why don't they come with a clear policy instead of making so much different rules and stating everything differently. If a clear policy come in the market that will give a good benefit to investors and govt as well in the shape of taxes on earnings. I am strongly recommending that earning from the Bitcoin and gain should be taken care by finance  Ministry and allow bitcoin to enter into the open investor market as well as in exchange.

Thanks